CONTACT:
Robert F. Mangano
Stephen J. Gilhooly
 
President & Chief Executive Officer
Sr. Vice President & Chief Financial Officer
 
(609) 655-4500
(609) 655-4500
        
PRESS RELEASE - FOR IMMEDIATE RELEASE

1ST CONSTITUTION BANCORP
REPORTS SECOND QUARTER 2018 RESULTS,
SUCCESSFUL INTEGRATION OF NEW JERSEY COMMUNITY BANK
AND QUARTERLY DIVIDEND OF $0.06


Cranbury NJ - July 20, 2018 -- 1ST Constitution Bancorp (NASDAQ: FCCY), the holding company (the “Company”) for 1ST Constitution Bank (the “Bank”), today reported net income of $1.9 million and diluted earnings per share of $0.22 for the three months ended June 30, 2018. For the six months ended June 30, 2018, net income was $4.7 million and diluted earnings per share were $0.56.

The Board of Directors declared a quarterly cash dividend of $0.06 per share of common stock that will be paid on August 23, 2018 to shareholders of record on August 10, 2018.

On April 11, 2018, the Company completed the merger of New Jersey Community Bank (“NJCB”) with and into the Bank. The shareholders of NJCB received total consideration of $8.6 million, which was comprised of 249,785 shares of common stock of the Company with a market value of $5.5 million and cash of $3.1 million of which $401,000 was placed in escrow to cover costs and expenses, including settlement costs, if any, that the Company may incur after closing the merger as a result of a certain litigation matter. As a result of the merger, merger related expenses of $2.0 million were incurred and the after-tax effect of the merger expenses reduced net income for the second quarter by $1.4 million. The acquisition method of accounting for the business combination resulted in the recognition of a gain from the bargain purchase of $184,000 and no goodwill.

Net income, excluding the after-tax effect of the merger expenses and the gain from the bargain purchase (“Adjusted net income”), was $3.1 million, or $0.36 per diluted share for the second quarter of 2018 and increased $1.2 million, or 62.7%, compared to net income for the three months ended June 30, 2017 of $1.9 million, or $0.23 per diluted share.

For the six months ended June 30, 2018, Adjusted net income was $6.1 million, or $0.72 per diluted share, compared to $3.9 million, or $0.47 per diluted share. The after-tax effect of merger expenses was $1.6 million for the six months ended June 30, 2018.



SECOND QUARTER 2018 HIGHLIGHTS
Return on average assets and Adjusted return on average assets were 0.65% and 1.09%, respectively, and Return on average equity and Adjusted return on average equity were 6.36% and 10.61%, respectively, for the three months ended June 30, 2018.
Book value per share and tangible book value per share were $14.42 and $12.94, respectively, at June 30, 2018.
Net interest income was $11.0 million and the net interest margin was 4.13% on a tax equivalent basis.
Non-interest income increased $277,000 from the comparable period in the prior year to $2.0 million,


        

which reflected primarily the gain from the bargain purchase of $184,000.
A provision for loan losses of $225,000 and net charge-offs of $24,000 were recorded.
Total loans were $899.9 million at June 30, 2018 and included $72.7 million of loans acquired in the NJCB merger. Commercial business, commercial real estate and construction loans totaled $623.5 million and included $59.5 million of loans acquired in the NJCB merger at June 30, 2018. Excluding the acquired NJCB loans, commercial business, commercial real estate and construction loans increased $25.8 million, or 4.8%, compared to $538.2 million at December 31, 2017 and increased $67.4 million, or 13.6%, compared to $496.6 million at June 30, 2017.
The acquisition of NJCB included loans and deposits of $72.7 million and $90.9 million, respectively, at June 30, 2018.
Non-performing assets were $10.1 million, or 0.82% of assets, and included $1.2 million of OREO at June 30, 2018, which resulted primarily from the acquisition of NJCB.
       

Adjusted net income, Adjusted net income per diluted share, Adjusted return on average assets and Adjusted return on average equity are non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, but not as a substitute for, the Company’s GAAP financial results. A reconciliation of these non-GAAP financial measures to the GAAP financial results is attached to this press release. Management believes that the presentation of these non-GAAP financial measures of the Company in this press release may be helpful to readers in understanding the Company’s financial performance without including the financial impact of the NJCB merger when comparing the Company’s income statement for the three- and six-month periods ended June 30, 2018 and the three- and six-month periods ended June 30, 2017.

Robert F. Mangano, President and Chief Executive Officer, stated “We completed the acquisition of New Jersey Community Bank, the conversion of its core operating system and achieved our expected operating synergies through the integration of its operations during the second quarter.” Mr. Mangano added, “Our second quarter results, excluding the impact of merger expenses and acquisition accounting, reflected our sound operating fundamentals driven by the growth of our loan portfolio. The financial benefit of the higher short-term interest rate environment and our asset sensitive interest rate position is continuing to have a positive effect on net interest income and our net interest margin.”

Mr. Mangano continued, “We are pleased to welcome the shareholders, employees and customers of New Jersey Community Bank to 1st Constitution Bank. We look forward to building on all of our existing customer relationships and continuing to expand our presence in Freehold, Neptune and Monmouth County.”

Discussion of Financial Results
Net income was $1.9 million, or $0.22 per diluted share, for the second quarter of 2018 compared to $1.9 million, or $0.23 per diluted share, for the second quarter of 2017. Adjusted net income and Adjusted net income per diluted share were $3.1 million and $0.36, respectively, for the second quarter of 2018. For the three months ended June 30, 2018, net interest income was $11.0 million, compared to $8.8 million for the three months ended June 30, 2017. The increase in earning assets and the yield on loans were the primary drivers of the $2.2 million increase in net interest income. Non-interest expenses were $10.3 million for the second quarter of 2018 compared to $7.7 million for the second quarter of 2017 and included merger related expenses of $2.0 million.

Net interest income was $11.0 million for the quarter ended June 30, 2018 and increased $2.2 million, or 24.8%, compared to net interest income of $8.8 million for the second quarter of 2017. Total interest income was $12.9 million for the three months ended June 30, 2018 compared to $10.2 million for the three months


        

ended June 30, 2017. This increase was due primarily to the $160.3 million increase in average loans, reflecting growth primarily of commercial real estate, mortgage warehouse and construction loans. The growth of average loans included average loans of approximately $64 million from the acquisition of NJCB. Average interest-earning assets were $1.08 billion with a yield of 4.77% for the second quarter of 2018 compared to $961.7 million with a yield of 4.35% for the second quarter of 2017. The higher yield on average interest-earning assets for the second quarter of 2018 reflected primarily the higher yield earned on the loan portfolio. The 75 basis point increase in the Federal Reserve’s targeted federal funds rate and the corresponding increase in the Prime Rate since June of 2017 have had a positive effect on the yields of construction, commercial business, home equity and warehouse loans with variable interest rate terms in the second quarter of 2018.
Interest expense on average interest-bearing liabilities was $1.9 million, with an interest cost of 0.91%, for the second quarter of 2018 compared to $1.3 million, with an interest cost of 0.74%, for the second quarter of 2017. The $523,000 increase in interest expense on interest-bearing liabilities for the second quarter of 2018 reflected primarily higher deposit interest costs due to higher short-term market interest rates in the second quarter of 2018 compared to the second quarter of 2017 and an increase of $98.5 million in average interest-bearing liabilities.
The net interest margin increased to 4.13% for the second quarter of 2018 compared to 3.79% for the second quarter of 2017 due primarily to the higher yield on average interest-earning assets. Net interest income for the second quarter of 2018 included $143,000 of prepayment fees due to the early repayment of loans, which increased the net interest margin by approximately 4 basis points. There were no prepayment fees received in the second quarter of 2017.
The Company recorded a higher provision for loan losses of $225,000 for the second quarter of 2018 compared to a provision for loan losses of $150,000 for the second quarter of 2017 due primarily to the growth of the loan portfolio and the change in the mix of loans in the loan portfolio.
At June 30, 2018, total loans were $899.9 million and the allowance for loan losses was $8.5 million, or 0.94% of total loans, compared to total loans of $762.6 million and an allowance for loan losses of $7.7 million, or 1.01% of total loans, at June 30, 2017. Included in loans at June 30, 2018 were $72.7 million of loans that were acquired in the NJCB merger. The decrease in the allowance as a percentage of loans was due primarily to the NJCB acquisition accounting, which resulted in the NJCB loans being recorded at their fair value which included a credit risk adjustment discount of approximately $1.6 million. Management believes that the current economic conditions in New Jersey and operating conditions for the Company are generally positive, which were also considered in management’s evaluation of the adequacy of the allowance for loan losses.
Non-interest income was $2.0 million for the second quarter of 2018, an increase of $277,000, compared to $1.8 million for the second quarter of 2017. This increase was due primarily to the $184,000 gain from the bargain purchase related to the acquisition of NJCB. In addition, other income increased $86,000 due primarily to higher debit card interchange income and customer service fees. Gains on the sale of loans declined $34,000. In the second quarter of 2018, $21.2 million of residential mortgages were sold and $672,000 of gains were recorded compared to $24.9 million of residential mortgage loans sold and $820,000 of gains recorded in the second quarter of 2017. The decrease in residential mortgage loans sold was due primarily to lower residential mortgage lending activity as the result of higher mortgage interest rates in 2018 compared to 2017. In the second quarter of 2018, $3.9 million of SBA loans were sold and gains of $312,000 were recorded compared to $2.1 million of SBA loans sold and gains of $198,000 recorded in the second quarter of 2017. SBA guaranteed commercial lending activity and loan sales vary from period to period.


        

Non-interest expenses were $10.3 million for the second quarter of 2018, an increase of $2.6 million, or 33.4%, compared to $7.7 million for the second quarter of 2017. The increase was due primarily to $2.0 million of merger related expenses that were incurred in the second quarter of 2018 for termination of contracts, legal and financial advisory fees, severance and other expenses. Salaries and employee benefits expense increased $384,000, or 8.2%, in the second quarter of 2018 due primarily to salaries for former NJCB employees joining the Company, merit increases and increases in employee benefit expenses. Occupancy costs increased $65,000, or 7.9%, due primarily to the addition of the two former NJCB branch offices in the second quarter of 2018. Data processing expenses increased to $369,000 in the second quarter of 2018 compared to $326,000 for the second quarter of 2017 due primarily to the separate NJCB data processing costs incurred from the date of the closing of the merger to the date of core operating system integration on June 15, 2018. FDIC insurance expense increased $66,000, or 82.5%, due to the internal growth of assets and the acquisition of NJCB. Other operating expenses increased $41,000 due primarily to increases in supplies, postage, telephone, business development and marketing expenses.
Income tax expense was $714,000 for the second quarter of 2018, resulting in an effective tax rate of 27.6%, compared to income tax expense of $841,000, which resulted in an effective tax rate of 30.5%, for the second quarter of 2017. Income tax expense and the effective tax rate decreased in the second quarter of 2018 due primarily to the decrease in the maximum federal corporate income tax rate from 35% to 21% beginning in 2018 as a result of the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December of 2017. Partially offsetting the lower federal corporate income tax rate was the enactment of legislation by the State of New Jersey in July of 2018, which increased the corporate income tax rate to 11.5% from 9% for taxable income of $1.0 million or more effective January 1, 2018. The higher New Jersey corporate income tax rate for 2018 increased the Company’s effective tax rate for 2018 by approximately 2%.
At June 30, 2018, the allowance for loan losses was $8.5 million compared to $8.0 million at December 31, 2017. As a percentage of total loans, the allowance was 0.94% at June 30, 2018 compared to 1.01% at December 31, 2017. The decrease in the allowance as a percentage of loans was due primarily to the NJCB acquisition accounting, which resulted in the NJCB loans being recorded at their fair value and the elimination of the NJCB allowance for loan losses.
Total assets increased $150.2 million to $1.23 billion at June 30, 2018 from $1.08 billion at December 31, 2017 due primarily to a $110.0 million increase in total loans and an increase of $9.7 million in investment securities. The increase in assets was funded primarily by a $34.8 million increase in deposits and a $97.7 million increase in overnight borrowings. Total portfolio loans at June 30, 2018 were $899.9 million compared to $789.9 million at December 31, 2017. The increase in loans was due primarily to an increase of $68.0 million in commercial real estate loans, a $14.9 million increase in mortgage warehouse loans and a $15.5 million increase in commercial business loans. The acquisition of NJCB contributed $72.7 million to the increase of loans at June 30, 2018.

Total deposits at June 30, 2018 were $956.8 million compared to $922.0 million at December 31, 2017. The acquisition of NJCB contributed $90.9 million of deposits at June 30, 2018, which were comprised of $13.0 million of non-interest bearing deposits, $21.1 million of interest bearing demand deposits, $3.3 million of savings accounts and $53.5 million of certificates of deposit. Total deposits, excluding the NJCB deposits, declined $56.2 million during the first six months of 2018. Municipal deposits, primarily interest bearing demand deposits and savings accounts, declined approximately $37.2 million from the end of 2017. As a result of the Tax Act, a number of the Bank’s municipal customers experienced significant advanced payments in December 2017 for real estate taxes that were due in 2018. This was due to income tax planning considerations by individuals. As the Bank’s municipal customers expended these additional funds in the first six months of 2018, their deposit balances declined from the levels at December 31, 2017. Management estimates that there were approximately $15 to $20 million of


        

municipal deposits, primarily interest bearing demand accounts and savings accounts, at June 30, 2018 that are likely to flow out of the Bank during the third quarter of 2018 as the municipal customers expend these additional funds to support their operations. Management believes that the Bank’s liquidity resources are adequate to meet this projected outflow of deposits during this period. The balance of the outflow of interest bearing demand accounts and savings accounts was due to the routine movement of customers’ funds.

Regulatory capital ratios for the Company and the Bank continue to reflect a strong capital position. Under current regulatory capital standards, the Company’s common equity Tier 1 to risk-based assets (“CET1”), total risk-based capital, Tier I capital, and leverage ratios were 10.16%, 12.57%, 11.80% and 11.45%, respectively, at June 30, 2018. The Bank’s common equity Tier 1, total risk-based capital, Tier 1 capital and leverage ratios were 11.60%, 12.37%, 11.60% and 11.25%, respectively, at June 30, 2018. The Company and the Bank are considered “well capitalized” under these capital standards.

Asset Quality

Non-performing loans were $8.9 million at June 30, 2018 compared to $7.1 million at December 31, 2017 and $6.1 million at June 30 2017. During the second quarter of 2018, $446,000 of non-performing loans were resolved. Principal payments of $313,000 on non-accrual loans were recorded in the second quarter of 2018 and loans totaling $1.6 million were placed on non-accrual status. Charge-offs of loans were $40,000 and recoveries were $16,000 for the second quarter of 2018. The allowance for loan losses was 95% of non-performing loans at June 30, 2018 compared to 113% of non-performing loans at December 31, 2017.

Overall, management observed generally stable trends in loan quality, with non-performing loans to total loans of 0.99% and non-performing assets to total assets of 0.82% at June 30, 2018 compared to non-performing loans to total loans of 0.90% and non-performing assets to total assets of 0.66% at December 31, 2017.

OREO at June 30, 2018 was $1.2 million and consisted of one residential real estate property acquired in the NJCB acquisition and land fair valued at $93,000 that was foreclosed in the second quarter.
 


        

About 1ST Constitution Bancorp
1ST Constitution Bancorp, through its primary subsidiary, 1ST Constitution Bank, operates 20 branch banking offices in Cranbury (2), Asbury Park, Fort Lee, Freehold, Hamilton, Hightstown, Hillsborough, Hopewell, Jamesburg, Lawrenceville, Little Silver, Neptune, Perth Amboy, Plainsboro, Princeton, Rocky Hill, Rumson, Fair Haven and Shrewsbury, New Jersey.
1ST Constitution Bancorp is traded on the Nasdaq Global Market under the trading symbol “FCCY” and information about the Company can be accessed through the Internet at www.1STCONSTITUTION.com
The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, relationships, opportunities, taxation, technology and market conditions. These statements may be identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “may,” “will,” or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to, changes in the direction of the economy in New Jersey, the direction of interest rates, effective income tax rates, loan prepayment assumptions, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, a higher level of net loan charge-offs and delinquencies than anticipated, bank regulatory rules, regulations or policies that restrict or direct certain actions, the adoption, interpretation and implementation of new or pre-existing accounting pronouncements, a change in legal and regulatory barriers including issues related to compliance with anti-money laundering and bank secrecy act laws, as well as the effects of general economic conditions and legal and regulatory barriers and structure. 1ST Constitution Bancorp assumes no obligation for updating any such forward-looking statements at any time, except as required by law.
 
##############



        

1ST Constitution Bancorp
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
(Unaudited)
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Per Common Share Data:
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.24

 
$
0.57

 
$
0.48

Diluted
0.22

 
0.23

 
0.56

 
0.47

Tangible book value per common share at the period-end
 
 
 
 
12.94

 
11.95

Book value per common share at the period-end
 
 
 
 
14.42

 
13.53

Average common shares outstanding:
 
 
 
 
 
 
 
Basic
8,341,459

 
8,033,299

 
8,227,109

 
8,029,690

Diluted
8,628,105

 
8,301,939

 
8,506,961

 
8,301,431

Shares Outstanding at end of period
 
 
 
 
8,379,342

 
8,046,197

Performance Ratios/Data:
 
 
 
 
 
 
 
Return on average assets
0.65
%
 
0.76
%
 
0.86
%
 
0.77
%
Return on average equity
6.36
%
 
7.14
%
 
8.25
%
 
7.31
%
Net interest income (tax-equivalent basis) 1
$
11,153

 
$
9,093

 
$
20,968

 
$
17,552

Net interest margin (tax-equivalent basis) 2
4.13
%
 
3.79
%
 
4.04
%
 
3.72
%
Efficiency ratio (tax-equivalent basis) 3
77.68
%
 
70.78
%
 
71.88
%
 
70.58
%
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
Loan Portfolio Composition:
 
 
 
 
2018
 
2017
Commercial real estate
 
 
 
 
$
378,997

 
$
297,843

Mortgage warehouse lines
 
 
 
 
204,359

 
189,412

Construction loans
 
 
 
 
138,144

 
136,412

Commercial business
 
 
 
 
106,359

 
103,987

Residential real estate
 
 
 
 
46,048

 
40,494

Loans to individuals
 
 
 
 
25,171

 
21,025

Other loans
 
 
 
 
583

 
183

Gross loans
 
 
 
 
899,661

 
789,356

Deferred costs, net
 
 
 
 
251

 
550

Total loans
 
 
 
 
$
899,912

 
$
789,906

Asset Quality Data:
 
 
 
 
 
 
 
Loans past due over 90 days and still accruing
 
 
 
 

 

Non-accrual loans
 
 
 
 
8,913

 
7,114

OREO property
 
 
 
 
1,223

 

Total non-performing assets
 
 
 
 
$
10,136

 
$
7,114

 
 
 
 
 
 
 
 
Net recoveries
$
(24
)
 
$
7

 
$
35

 
$
(87
)
Allowance for loan losses to total loans
 
 
 
 
0.94
%
 
1.01
%
Allowance for loan losses to non-performing loans
 
 
 
 
95.34
%
 
112.64
%
Non-performing loans to total loans
 
 
 
 
0.99
%
 
0.90
%
Non-performing assets to total assets
 
 
 
 
0.82
%
 
0.66
%
Capital Ratios:
 
 
 
 
 
 
 
1ST Constitution Bancorp
 
 
 
 
 
 
 
Common equity to risk weighted assets ("CET 1")


 


 
10.16
%
 
10.19
%
Total capital to risk weighted assets


 


 
12.57
%
 
12.84
%
Tier 1 capital to risk weighted assets


 


 
11.80
%
 
12.02
%
Tier 1 capital to average assets (leverage ratio)


 


 
11.45
%
 
11.23
%
1ST Constitution Bank
 
 
 
 
 
 
 
Common equity to risk weighted assets ("CET 1")


 


 
11.60
%
 
11.74
%
Total capital to risk weighted assets


 


 
12.37
%
 
12.55
%
Tier 1 capital to risk weighted assets


 


 
11.60
%
 
11.74
%
Tier 1 capital to average assets (leverage ratio)


 


 
11.25
%
 
10.96
%

1The tax equivalent adjustment was $135 and $263 for the three months ended June 30, 2018 and June 30, 2017, respectively.
The tax equivalent adjustment was $271 and $528 for the six months ended June 30, 2018 and June 30, 2017, respectively.


        

2Represents net interest income on a taxable equivalent basis as a percent of average interest-earning assets.
3Represents non-interest expenses divided by the sum of net interest income on a taxable equivalent basis and non-interest income.


        

1ST Constitution Bancorp
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash and due from banks
$
5,572

 
$
5,037

Interest-earning deposits
25,079

 
13,717

    Total cash and cash equivalents
30,651

 
18,754

Investment securities
 
 
 
  Available for sale, at fair value
130,075

 
105,458

  Held to maturity (fair value of $95,670 and $111,865 at June 30, 2018 and December 31, 2017, respectively)
95,322

 
110,267

Total securities
225,397

 
215,725

 
 
 
 
Loans held for sale
9,291

 
4,254

Loans
899,912

 
789,906

  Less: allowance for loan losses
(8,498
)
 
(8,013
)
    Net loans
891,414

 
781,893

Premises and equipment, net
11,874

 
10,705

Accrued interest receivable
3,785

 
3,478

Bank owned life insurance
28,403

 
25,051

Other real estate owned
1,223

 
12,496

Goodwill and intangible assets
12,387

 

Other assets
15,087

 
6,918

Total assets
$
1,229,512

 
$
1,079,274

Liabilities and shareholders' equity
 
 
 
Liabilities
 
 
 
Deposits
 
 
 
  Non-interest bearing
$
216,087

 
$
196,509

  Interest bearing
740,700

 
725,497

    Total deposits
956,787

 
922,006

 
 
 
 
Short-term borrowings
118,225

 
20,500

Redeemable subordinated debentures
18,557

 
18,557

Accrued interest payable
850

 
804

Accrued expense and other liabilities
14,244

 
5,754

Total liabilities
1,108,663

 
967,621

Shareholders' equity
 
 
 
Preferred stock, no par value; 5,000,000 shares authorized; none issued

 

Common stock, no par value; 30,000,000 shares authorized; 8,412,640 and 8,116,201 shares issued and 8,379,342 and 8,082,903 shares outstanding as of June 30, 2018 and December 31, 2017, respectively
79,003

 
72,935

Retained earnings
44,061

 
39,822

Treasury stock, 33,298 shares at June 30, 2018 and December 31, 2017
(368
)
 
(368
)
Accumulated other comprehensive loss
(1,847
)
 
(736
)
Total shareholders' equity
120,849

 
111,653

Total liabilities and shareholders' equity
$
1,229,512

 
$
1,079,274



        

1ST Constitution Bancorp
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Interest income
 
 
 
 
 
 
 
     Loans, including fees
$
11,349

 
$
8,697

 
$
20,885

 
$
16,740

     Securities:
 
 
 
 
 
 
 
           Taxable
989

 
839

 
1,855

 
1,654

           Tax-exempt
509

 
548

 
1,024

 
1,101

     Federal funds sold and short-term investments
34

 
86

 
172

 
158

               Total interest income
12,881

 
10,170

 
23,936

 
19,653

Interest expense
 
 
 
 
 
 
 
     Deposits
1,469

 
1,104

 
2,688

 
2,147

     Borrowings
220

 
109

 
227

 
236

     Redeemable subordinated debentures
174

 
127

 
324

 
246

Total interest expense
1,863

 
1,340

 
3,239

 
2,629

               Net interest income
11,018

 
8,830

 
20,697

 
17,024

Provision for loan losses
225

 
150

 
450

 
300

      Net interest income after provision for loan losses
10,793

 
8,680

 
20,247

 
16,724

Non-interest income
 
 
 
 
 
 
 
     Service charges on deposit accounts
153

 
149

 
303

 
303

     Gain on sales of loans
984

 
1,018

 
2,133

 
2,607

     Income on bank-owned life insurance
159

 
130

 
273

 
260

Gain on bargain purchase
184

 

 
184

 

     Gain on sales of securities
6

 
(2
)
 
12

 
104

     Other income
557

 
471

 
1,023

 
905

Total non-interest income
2,043

 
1,766

 
3,928

 
4,179

Non-interest expense
 
 
 
 
 
 
 
     Salaries and employee benefits
5,076

 
4,692

 
9,814

 
9,193

     Occupancy expense
885

 
820

 
1,697

 
1,658

     Data processing expenses
369

 
326

 
678

 
644

     FDIC insurance expense
146

 
80

 
276

 
160

Other real estate owned expenses

 
11

 
2

 
15

     Merger-related expenses
1,977

 

 
2,141

 

     Other operating expenses
1,798

 
1,757

 
3,288

 
3,672

 Total non-interest expenses
10,251

 
7,686

 
17,896

 
15,342

                  Income before income taxes
2,585

 
2,760

 
6,279

 
5,561

Income taxes
714

 
841

 
1,555

 
1,693

                  Net Income
$
1,871

 
$
1,919

 
$
4,724

 
$
3,868

Net income per common share
 
 
 
 
 
 
 
          Basic
$
0.22

 
$
0.24

 
$
0.57

 
$
0.48

          Diluted
0.22

 
0.23

 
0.56

 
0.47

Weighted average shares outstanding
 
 
 
 
 
 
 
           Basic
8,341,459

 
8,033,299

 
8,227,109

 
8,029,690

           Diluted
8,628,105

 
8,301,939

 
8,506,961

 
8,301,431




        

1ST Constitution Bancorp
Net Interest Margin
(Dollars in thousands)
(Unaudited)
 
Three months ended June 30, 2018
 
Three months ended June 30, 2017
 
Average
 
 
 
Average
 
Average
 
 
 
Average
(yields on a tax-equivalent basis)
Balance
 
Interest
 
Yield
 
Balance
 
Interest
 
Yield
Assets
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold/short term investments
$
11,633

 
$
34

 
1.17
%
 
$
38,469

 
$
86

 
0.89
%
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
    Taxable
149,366

 
989,000

 
2.65

 
144,790

 
839

 
2.32

    Tax-exempt (4)
76,567

 
644,000

 
3.36

 
93,415

 
811

 
3.47

    Total
225,933

 
1,633

 
2.89

 
238,205

 
1,650

 
2.77

Loans (1):
 
 
 
 
 
 
 
 
 
 
 
    Commercial real estate
368,850

 
4,794,000

 
5.14

 
253,050

 
3,290

 
5.14

    Mortgage warehouse lines
154,796

 
2,057,000

 
5.26

 
140,469

 
1,530

 
4.31

    Construction
133,679

 
2,178,000

 
6.45

 
110,994

 
1,699

 
6.05

    Commercial business
109,245

 
1,460,000

 
5.31

 
110,772

 
1,441

 
5.15

    Residential real estate
50,154

 
548,000

 
4.37

 
41,275

 
460

 
4.46

    Loans to individuals
24,990

 
275,000

 
4.41

 
22,466

 
232

 
4.14

    Loans held for sale
2,428

 
26,000

 
4.28

 
4,303

 
39

 
3.64

    Other
1,123

 
11,000

 
3.88

 
1,677

 
6

 
1.47

    Total
845,265

 
11,349

 
5.32

 
685,006

 
8,697

 
5.09

Total interest earning assets
1,082,831

 
13,016

 
4.77
%
 
961,680

 
10,433

 
4.35
%
Allowance for loan losses
(8,390
)
 
 
 
 
 
(7,617
)
 
 
 
 
Cash and due from bank
6,232

 
 
 
 
 
4,978

 
 
 
 
Other assets
65,721

 
 
 
 
 
58,346

 
 
 
 
Total assets
$
1,146,394

 
 
 
 
 
$
1,017,387

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
    Money market and NOW accounts
$
375,846

 
$
506

 
0.54
%
 
$
341,704

 
$
358

 
0.42
%
    Savings accounts
208,755

 
361

 
0.69
%
 
209,719

 
331

 
0.63

    Certificates of deposit
174,107

 
602

 
1.39
%
 
139,931

 
415

 
1.19

    Other borrowed funds
43,464

 
220

 
2.03
%
 
12,367

 
109

 
3.54

    Trust preferred securities
18,557

 
174

 
3.75
%
 
18,557

 
127

 
2.72

 Total interest-bearing liabilities
820,729

 
1,863

 
0.91
%
 
722,278

 
1,340

 
0.74
%
Net interest spread (2)
 
 
 
 
3.86
%
 
 
 
 
 
3.61
%
Demand deposits
199,707

 
 
 
 
 
181,446

 
 
 
 
Other liabilities
7,978

 
 
 
 
 
5,901

 

 
 
 Total non-interest bearing liabilities
207,685

 
 
 
 
 
187,347

 
 
 
 
Shareholders' equity
117,980

 
 
 
 
 
107,762

 
 
 
 
Total liabilities and shareholders' equity
$
1,146,394

 
 
 
 
 
$
1,017,387

 
 
 
 
Net interest margin (3)
 
 
11,153

 
4.13
%
 
 
 
9,093

 
3.79
%

(1) Loan origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances include non-accrual loans with no related interest income and the average balance of loans held for sale.
(2) The net interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.
(3) The net interest margin is equal to net interest income divided by average interest-earning assets.
(4) Tax equivalent basis, using 21% federal tax rate in 2018 and 34% in 2017.
 



        

1ST Constitution Bancorp
Net Interest Margin
(Dollars in thousands)
(Unaudited)
 
Six months ended June 30, 2018
 
Six months ended June 30, 2017
 
Average
 
 
 
Average
 
Average
 
 
 
Average
(yields on a tax-equivalent basis)
Balance
 
Interest
 
Yield
 
Balance
 
Interest
 
Yield
Assets
 
 
 
 
 
 
 
 
 
 
 
Federal funds sold/short term investments
$
26,031

 
$
172

 
1.33
%
 
$
38,917

 
$
158

 
0.82
%
Investment securities:
 
 
 
 
 
 
 
 
 
 
 
    Taxable
143,405

 
1,855,000

 
2.59

 
141,312

 
1,654

 
2.34

    Tax-exempt (4)
78,524

 
1,295,000

 
3.3

 
94,022

 
1,629

 
3.46

    Total
221,929

 
3,150

 
2.84

 
235,334

 
3,283

 
2.79

Loans: (1)
 
 
 
 
 
 
 
 
 
 
 
    Commercial real estate
336,743

 
8,490,000

 
5.01

 
245,921

 
6,278

 
5.08

    Mortgage warehouse lines
145,728

 
3,813,000

 
5.23

 
146,171

 
3,100

 
4.22

    Construction
131,330

 
4,141,000

 
6.36

 
105,140

 
3,140

 
5.94

    Commercial business
110,118

 
2,895,000

 
5.3

 
108,781

 
2,684

 
4.98

    Residential real estate
45,537

 
988,000

 
4.32

 
41,983

 
915

 
4.36

    Loans to individuals
22,742

 
475,000

 
4.15

 
22,452

 
477

 
4.29

    Loans held for sale
2,997

 
63,000

 
4.2

 
4,761

 
128

 
5.41

    All other loans
1,168

 
20,000

 
3.41

 
1,981

 
18

 
1.82

    Total
796,363

 
20,885

 
5.24

 
677,191

 
16,740

 
4.99

          Total interest-earning assets
1,044,323

 
24,207

 
4.63
%
 
951,442

 
20,181

 
4.27
%
Allowance for loan losses
(8,249
)
 
 
 
 
 
(7,583
)
 
 
 
 
Cash and due from bank
5,789

 
 
 
 
 
5,502

 
 
 
 
Other assets
61,980

 
 
 
 
 
58,275

 
 
 
 
Total assets
$
1,103,843

 
 
 
 
 
$
1,007,636

 
 
 
 
Liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
    Money market and NOW accounts
$
373,873

 
$
938

 
0.51
%
 
$
331,197

 
$
675

 
0.41
%
    Savings accounts
216,180

 
708

 
0.66
%
 
210,822

 
654

 
0.63

    Certificates of deposit
154,814

 
1,042

 
1.36
%
 
141,199

 
818

 
1.17

    Other borrowed funds
22,673

 
227

 
2.02
%
 
16,917

 
236

 
2.81

    Trust preferred securities
18,557

 
324

 
3.49
%
 
18,557

 
246

 
2.64

           Total interest-bearing liabilities
786,097

 
3,239

 
0.83
%
 
718,692

 
2,629

 
0.74
%
Net interest spread (2)
 
 
 
 
3.8
%
 
 
 
 
 
3.53
%
Demand deposits
194,189

 
 
 
 
 
175,770

 
 
 
 
Other liabilities
8,121

 
 
 
 
 
6,511

 
 
 
 
Total liabilities
988,407

 
 
 
 
 
900,973

 
 
 
 
Shareholders' equity
115,436

 
 
 
 
 
106,663

 
 
 
 
 Total liabilities and shareholders' equity
$
1,103,843

 
 
 
 
 
$
1,007,636

 
 
 
 
Net interest income/Net interest margin (3)
 
 
20,968

 
4.04
%
 
 
 
17,552

 
3.72
%
(1) Loan origination fees are considered an adjustment to interest income. For the purpose of calculating loan yields, average loan balances include non-accrual loans with no related interest income and the average balance of loans held for sale.
(2) The net interest spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.
(3) The net interest margin is equal to net interest income divided by average interest-earning assets.
(4) Tax equivalent basis, using 21% federal tax rate in 2018 and 34% in 2017.



        

1ST Constitution Bancorp
Reconciliation of Non-GAAP Measures (1)
(Dollars in thousands, except per share data)
(Unaudited)
 
 
 
Three months ended
 
Six months ended
 
 
 
June 30,
 
June 30,
 
 
 
2018
 
2017
 
2018
 
2017
Adjusted net income
 
 
 
 
 
 
 
 
 
Net income
 
$
1,871

 
$
1,919

 
$
4,724

 
$
3,868

 
Adjustments:
 
 
 
 
 
 
 
 
 
  Revaluation of deferred tax assets
 
1,977

 

 
2,141

 

 
  Merger-related expenses
 
(184
)
 

 
(184
)
 

 
  Income tax effect of adjustments (2)
 
(542
)
 

 
(568
)
 

 
Adjusted net income
 
$
3,122

 
$
1,919

 
$
6,113

 
$
3,868

 
 
 
 
 
 
 
 
 
 
Adjusted net income per diluted share
 
 
 
 
 
 
 
 
 
Adjusted net income
 
$
3,122

 
$
1,919

 
$
6,113

 
$
3,868

 
Diluted shares outstanding
 
8,628,105

 
8,301,939

 
8,506,961

 
8,301,431

 
Adjusted net income per diluted share
 
$
0.36

 
$
0.23

 
$
0.72

 
$
0.47

 
 
 
 
 
 
 
 
 
 
Adjusted average return on average assets
 
 
 
 
 
 
 
 
 
Adjusted net income
 
$
3,122

 
$
1,919

 
$
6,113

 
$
3,868

 
Average assets
 
1,146,394

 
1,017,387

 
1,103,843

 
1,007,636

 
Adjusted return on average assets
 
1.09
%
 
0.76
%
 
1.12
%
 
0.77
%
 
 
 
 
 
 
 
 
 
 
Adjusted average return on average equity
 
 
 
 
 
 
 
 
 
Adjusted net income
 
$
3,122

 
$
1,919

 
$
6,113

 
$
3,868

 
Average equity
 
117,980

 
107,762

 
115,436

 
106,663

 
Adjusted return on average equity
 
10.61
%
 
7.14
%
 
10.68
%
 
7.31
%
(1) The Company used the non-GAAP financial measures, adjusted net income and adjusted net income per diluted share, because the Company believes that it is useful for the users of the financial information to understand the effect on net income of the merger-related expenses and the gain from the bargain purchase recorded in connection with the merger of New Jersey Community Bank. These non-GAAP measures improve the comparability of the current period results with the results of prior periods. The Company cautions that the non-GAAP financial measures should be considered in addition to, but not as a substitute for, the Company's GAAP results.
(2) Tax effected at an income tax rate of 30.09%, less the impact of non-deductible merger expenses and the non-taxable gain from the bargain purchase.


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